President Trump extended the tariff truce between the US and China, a measure that could potentially set the stage for a summit with Chinese leader Xi Jinping later this year.
With just hours remaining before the final deadline at midnight on Tuesday, Trump’s decree acknowledged that China was taking “significant measures” to address US concerns on “economic and national security issues.” Beijing announced the truce extension at the same time.
Allowing the truce to expire would have caused tariffs in both countries to skyrocket, representing a major blow to trade between the world’s two largest economies. The US will maintain its standard tariff on Chinese products at 30%, and China will keep its own tariff on US products at 10%.
The extension gives both sides another 90 days to resolve their differences on a range of issues, as Trump seeks to reshape the global economy in favor of bringing industry back to the US. The move also comes at a time when the US is announcing several trade deals with countries like South Korea and Japan, on one hand, and imposing heavy tariffs on several nations, on the other—for example, Trump threatened to raise US tariffs to 50% on Indian exports to the US at the end of August, due to that country’s continued purchases of Russian oil.
“Today’s news, in general, stabilizes the situation, boosts confidence among American consumers, importers of products that sell them in the US, and manufacturers in China,” said David Meale, head of the China Division at the Eurasia Group and former diplomat and deputy chief of mission at the US Embassy in Beijing. “I believe it is very likely that the US and China will reach some kind of trade deal, and the next steps will likely be driven by the prospect of a leaders’ meeting between President Trump and President Xi this fall.”
Meale believes the next steps for both sides will involve more meetings between trade and economic officials, like those held in Stockholm last month, to lay the groundwork for an eventual in-person meeting and a more concrete trade deal, which could be signed before the latest truce expires on November 10.
Shortly after taking office, Trump relaunched the trade war initiated in his first term, announcing tariff increases on China. Beijing responded with its own reciprocal tariffs and export controls on rare earth minerals, such as bismuth and tungsten, which are crucial components in most electronics. A series of rate hikes and responses continued through March and April, with US tariffs on Chinese imports reaching 145%, and China’s tariffs on US exports rising to 125%.
In a meeting in Geneva in May, however, tensions eased when both sides announced a 90-day truce, with both countries reducing tariffs and easing other trade barriers, including deliveries of Chinese rare earth minerals. But both sides soon accused each other of not honoring the agreement’s terms.
The two sides held two days of talks in Stockholm last month, but left without reaching a deal. After the negotiations, US Treasury Secretary Scott Bessent told CNBC that he believed the US and China had reached “the principles of a deal” and that “there are still some technical details to be ironed out on the Chinese side. I’m confident it will be done, but it’s not 100% closed yet.” Bessent added that the final decision on approving any deal would rest with President Trump.
Negotiations between the US and China have been complex and include various issues, from US concerns about Chinese overproduction and purchases of Russian oil to Chinese complaints about Washington’s decision to limit exports of semiconductors needed to power AI systems.
Meale says the US priority in these negotiations will be to reduce its trade deficit with China, protect and diversify its supply chains, moving them away from dependence on China, and ensure a stable flow of rare earth minerals from China. There will be significant tariffs on Chinese products entering the US “when all this is over,” Meale predicts.
China, Meale says, is “seeking stability” in its relationship with the US, as it faces a slowing economy and seeks a more predictable environment for its businesses. Meale says China will also try to maintain its access to US technologies, such as advanced semiconductors and jet engines.
Nicholas Lardy, non-resident fellow at the Peterson Institute for International Economics, also says a final US-China trade deal could include easing technology restrictions, and a less likely possibility would be Chinese promises to invest in US manufacturing. Lardy adds that even if both sides move forward and reach a deal, in Trump’s view, “bilateral trade would decrease considerably, beyond what we’ve already seen.”
Although the truce has eased the worst of the trade tensions, trade between the US and China has declined significantly since the beginning of this year. China’s July export data showed that its exports to the US fell year-over-year for the fourth consecutive month, and Chinese imports from the US fell 10.3% between January and July.
Source: npr.org by Ashish Valentine